Antitrust Law Daily Wrap Up, ADVERTISING—W.D. Wash.: Yarn labeling actions consolidated, (Nov 14, 2013)

By Tobias J. Gillett, J.D., LL.M.

In a dispute between two yarn distributors over alleged fiber content and country of origin mislabeling of their respective yarns, the federal district court in Seattle has consolidated two actions asserting Lanham Act and Washington state law unfair competition and false advertising claims (Cascade Yarns, Inc. v. Knitting Fever, Inc., November 13, 2013, Martinez, R.). The court also denied one distributor’s motion to sever its country of origin counterclaims.

Cascade Yarns, Inc. and Knitting Fever, Inc. (KFI) compete in the market for the sale of luxury yarns. On May 24, 2010, Cascade filed suit against KFI, alleging that KFI engaged in false advertising and unfair competition in violation of the Lanham Act and the Washington Consumer Protection Act (WCPA) by mislabeling certain of its yarns as to their fiber content. KFI filed counterclaims asserting, among other claims, that certain Cascade yarns were mislabeled as to fiber content or country of origin. The court later dismissed all of Cascade’s claims and many of KFI’s counterclaims, leaving only KFI’s Lanham Act and WCPA unfair competition claims based on country of origin labeling of certain Cascade yarns and its Lanham Act and Washington common law claims arising from a posting on Cascade’s website.

Cascade then filed a second action against KFI, asserting Lanham Act and state law unfair competition and false advertising claims regarding KFI’s alleged mislabeling of certain yarns as to their country of origin(Cascade Yarns, Inc. v. Knitting Fever, Inc., et al., C13-674RSM (Cascade II)). KFI filed a motion to sever its country of origin counterclaims.

Motion to sever claims. The court explained that courts consider several factors in deciding whether to sever a claim under Federal Rule of Civil Procedure 21, including “(1) whether the claims arise out of the same transaction or occurrence; (2) whether the claims present some common questions of law or fact; (3) whether settlement of the claims or judicial economy would be facilitated; (4) whether prejudice would be avoided if severance were granted; and (5) whether different witnesses and documentary proof are required for the separate claims.”

The court concluded that severance of KFI’s country of origin counterclaims was not warranted. The subject matter of the counterclaims was not so distinct that a separate trial would be warranted, and the claims involved identical parties, identical statutes, and likely many of the same witnesses. The fact that KFI’s counterclaims involved different sets of allegedly false and misleading statements by Cascade did not “render them sufficiently discrete and separate so as to warrant severance.” Moreover, the “interests of judicial economy and efficiency” would be “served by maintaining KFI’s dual Lanham Act counterclaims in a single action.” The court noted that, whether or not Cascade’s unclean hands defense was probative to both counterclaims, the scope of the defense could be resolved through a motion in limine, and the court was not persuaded that “a jury instruction would not cure any potential jury confusion and prejudice to KFI’s case.”

Consolidation. The court concluded that consolidation of Cascade’s actions was warranted. The actions involved “identical parties and mirror-image claims of unfair competition regarding KFI and Cascade’s respective labeling practices as to country of origin of certain of their yarns.” Both actions were brought under the Lanham Act and identical provisions of Washington common law, and Cascade’s unclean hands defense involved “questions of fact that are identical to those that are relevant to its country of origin claims in Cascade II.” The cases would likely involve overlapping fact and expert witnesses and consolidation would prevent the juries from reaching inconsistent results. Finally, judicial economy would be “undoubtedly advanced” by consolidating the actions, and consolidation of the cases would lead to only a “brief delay.”

The case is No. C10-861 RSM.

Attorneys: Robert J. Guite (Sheppard Mullin Richter & Hampton) for Cascade Yarns Inc. Joshua R. Slavitt (Gordon & Rees LLP) for Knitting Fever Inc.

Companies: Cascade Yarns, Inc.; Kitting Fever, Inc.

Cases: Advertising WashingtonNews